GM, Chrysler Bailout: Bankruptcy on the Cheap

GM, Chrysler Bailout: Bankruptcy on the Cheap

Article excerpt

General Motors and Chrysler are trying to achieve the same kind
of massive restructuring that would occur in a bankruptcy. But
they're trying to do it minus the extra costs of a courtroom
setting.

That's the strategy that the cash-strapped carmakers filled in by
submitting lengthy viability plans - and an appeal for nearly $22
billion in additional loans - to the US government Tuesday.

GM said its survival depends on getting some $16.6 billion more
from the Treasury Department, on top of $13.4 billion it has already
received since December. Chrysler seeks $5 billion, in addition to
$4 billion already received.

Their viability plans, submitted to meet a deadline imposed by
the Treasury, sketched a progress report on steep cost cuts and
restructuring plans that the companies said would put them on a path
back to profitability.

It won't be easy.

Before they win new government backing, they need to convince an
Obama administration task force on the auto industry that their
plans are realistic.

"The short term situation is so dire, ... they have to get
government aid if they're going to survive," says Don Grimes, a
University of Michigan economist who follows the industry.

When would bailouts end?

At the end of a Tuesday night press briefing on its viability
plans, one reporter's question seemed to sum up the challenge facing
GM's management: How can the Treasury and taxpayers be sure that the
company won't come back again and again and again for more money?

Rick Wagoner, GM's chief executive officer, replied that the key
to long-term viability will be successful car designs and technology
for new generations of more fuel-efficient cars.

"In some of these automotive technologies, the leaders are here
in the United States, in many cases GM," he said. "The challenge is,
can we get our cost structure in line?... We've got a demonstrated
track record of cutting costs."

Now, too, it's clear to both the union and the company's
creditors that the cost-cutting imperative will demand significant
concessions from them.

GM and Chrysler both cited significant progress in talks with the
United Auto Workers union, which could lead to lower wage costs and
streamlined work rules. One key issue still under discussion is
reaching an accord on funding a retiree healthcare plan.

The companies also reported progress in talks with creditors. The
trick is to finalize a whole package with all parties by a March 31
Treasury deadline.

"We cannot make an accurate or conclusive assessment of the
company's long-term viability without specific details of the
tentative agreement GM has reached with the UAW regarding wages, or
without knowledge of how GM plans on treating its obligations to UAW
pension and health care trusts," creditors of GM said in a statement
Tuesday night. …